Chargebacks 101: What E-Commerce merchants should know
Credit card chargebacks are a costly reality for online merchants. Chargebacks occur when customers contact their credit card issuers to dispute charges. If an issuer deems a dispute valid, the e-commerce merchant is required to pay the amount owed for the transaction plus a chargeback fee from the processer – which can range from $15 to $100.
Chargebacks represent a loss to retailers’ bottom line, especially if they occur on a consistent basis. For that reason alone, it’s critical to keep chargebacks to a minimum. However, it is not just about the chargeback itself and the monetary consequences that can occur. Retailers must also consider the negative impact on the customer experience and how chargebacks can impact their relationship with credit card processing companies. For instance, too many chargebacks can affect retailers’ ability to work with credit card processing companies, thus affecting the payment options in place for customers. Therefore, it’s important to understand what chargebacks are, why they occur, how to manage them, and most importantly, ways to reduce them.
What is a Chargeback and Why Does it Occur?
E-commerce merchants can face chargebacks for many reasons, initiated by the merchant, bank or by the cardholder. One of the most frequent examples of chargebacks is when a purchase has supposedly been made by a customer, but is actually a criminal who has entered another person’s payment credentials. In this case, the victim whose bank card has been used for the fraudulent payments will file a claim to have the illegally withdrawn funds returned. When this happens, the bank initiates chargebacks to retailers after receiving documentation from cardholders that the specific transactions were fraudulent. In addition to the reversal of fraudulent payments, online merchants are assessed an additional fee by their own processing banks.
Aside from fraudulent transactions, customers may also dispute charges – issuing a chargeback – in any of the following ways:
• The customer did not receive the goods or services purchased
• The goods were defective or arrived not as described
• Buyer’s remorse – such as a product not arriving as expected or the buyer regretting making a purchase
How to manage chargebacks
The best way to manage chargebacks is through a case management system. Each chargeback that is received has a unique case number whether it is from PayPal, Visa, MasterCard, Discover, or American Express. Each of these providers has its own case management system, but there are also all-in-one case management solutions if one finds it tedious to check each tender. During particularly busy retail seasons, such as the holiday season, it’s important for retailers to ensure they have a trained and dedicated team to handle and expedite disputes. By focusing on recovering lost funds, retailers can ensure they don’t lose excessive funds from chargebacks.
How to lower chargebacks?
Once a chargeback has been initiated, it’s the retailer’s responsibility to respond to the chargeback notice. This process can be cumbersome, so retailers should reference the following ways to help lower chargebacks:
• As mentioned earlier, one of the primary causes for chargebacks is buyer’s remorse, so it is important retailers have a clear contact phone number on the website for customers to call. If customers are not sure if they made a purchase, they may reach out to the store or customer service team to find out more information on what the purchase included. This can lead to a chargeback not being issued if the retailer can solve the cardholder’s problem ahead of time.
• Retailers must respond to chargebacks as quickly as possible. This adds a lot of value and is part of the overall customer service experience any business should offer.
• Retailers should always ensure they receive full authorization for an order. This can be done by verifying you have received authorization for the proper dollar value of the order. To prevent improper authorization chargebacks, which are initiated by banks, an online merchant should get authorization for each package they ship out from their store/warehouse. If you receive authorization for an order and do not ship it out within seven days you need to get authorization again before shipping out the order.
• It’s vital not to charge the customer until the items are shipped. There is a difference between an authorization hold and the customer being charged. The customer should not be charged until the goods leave the warehouse, or the services have been provided.
• Refund information on receipts or packing slips should be included in every shipment. Retailers should make it easy for customers to find the refund policy and procedures online. Being able to return an item is less costly and time consuming for customers than retailers having to file a chargeback. This also creates a better customer experience by making it simple and easy for customers.
• When the chargeback is received, verify the customer’s address by calling the Voice Authorization Center for the specific tender. Retailers also should verify the customer’s name on file, their address, and the phone number.
• Retailers should receive a signed proof of delivery for each package that is shipped. Also, collect and keep a record of the tracking number used for each package to show the specific tracking from warehouse to the customer’s door.
• If providing goods or services online, retailers should clearly and accurately describe the products or services. Also, a customer testimonial section or a “Contact Us” section for a potential customer to reach out and learn more prior to a purchase can help to lower chargebacks. Examples of services that are sold online are remote computer diagnostics, online consulting, website purchases, digital products, and website memberships.
Chargebacks can be a costly nuisance retailers operating in the card not present space. While chargeback cases can be won, it’s important that retailers understand the many ways chargebacks can occur and the detrimental cost incurred by frequent disputes. Thankfully, there are preventative measures to reduce chargebacks, benefiting not just the retailer’s bottom line but the overall customer experience.
Michael Estabrooks is a financial recovery and reporting analyst atRadial(formerly eBay Enterprise), where he runs financial and chargeback analysis reports for the department and also assists in the recovery of outstanding chargebacks. He works chargebacks for multiple tenders for more than 100 clients in a wide array of verticals, including apparel, electronics, sporting goods, and jewelry.
Today’s Consumer is Smarter – Is Your Board?
Today, when it comes to adding new members to your board of directors, creating a balance between industry experience and innovation is extraordinarily important.
Filling board seats with industry veterans and compliance experts may feel comfortable in the short term. But, to adapt to today's savvy and demanding consumer, companies must be more forward thinking.
We've all witnessed the recent evolution of the C-suite – companies bringing in new, young talent, often from other industries, to modernize a brand, enhance the store experience or to leverage technology. Now it's time to see this same movement take hold at the board level. To build a board that will successfully take your company into the future, you need to expand the way you recruit new members.
1. Select board members who are currently working.
You need talent on your board that is talking to the consumer now. You need experts who are as smart, no, smarter, than today’s consumer. You need to add members who know what your consumers will want tomorrow. Experience is great, but experience is in the past. Your board members must be able to help you get to the future.
Kevin Systrom, CEO and co-founder of Instagram, is a perfect example. He was brought on to the board of Wal-Mart Stores because he lives in the future. His community of more than 300 million Instagram users provides invaluable insight. Kevin is young, connected to today's consumer and forward thinking.
2. Infuse your board with leaders who embrace the future through technology.
Board members have to recognize that technology has changed your consumer’s behavior, not just the way they shop.
Today we often hear retailers say, "The future is upon us." Board members must recognize that the future isn't upon us – the present is. The future is what’s happening next … thus, you need board members who can see around corners. These leaders must be able to anticipate tomorrow's innovations and understand how these innovations will shape consumer behavior and buying habits.
We added Ivy Ross to the Board of DXL, the largest big and tall men’s chain in the United States. Ivy is the head of wearable technology for Google. Now, the DXL board is in touch with the future.
3. Look for board members from outside your industry.
It's important to gain insight into your consumers from various perspectives. Find someone for your board who sells something different but to the same customer. A luxury retailer may want a board member from a fine dining restaurant – for example, if Anthony Bourdain were to join the board of LVMH. Or, because the in-store experience is so critical to your brand, you may want to bring on someone from the media/entertainment industry.
Does your board have this combination of talent?
To be effective, your board must be a balance of the wisdom that comes from experience with the foresight that is capable of keeping up with the fastest moving consumer in retail history.
Les Berglass is the chairman of Berglass+Associates, an executive search firm focused upon the consumer goods and retail sectors.
Online jeweler continues offline expansion
Blue Nile is expanding its fledgling store portfolio.
The online jewelry retailer has opened its second physical location, at The Westchester mall in White Plains, New York. Blue Nile opened its first store in June 2015, at Roosevelt Field mall in Garden City, New York. Two additional locations will open later this summer: one at Tysons Corner Center mall in Fairfax County, Virginia, and one at the Washington Square mall in Portland, Oregon.
In February, Blue Nile announced that based on the performance of the first location, up to four more would open this year.
Blue Nile stores are designed to bring the online shopping experience to life in a physical environment. Consumers are able to view more than 400 styles in person, try on engagement rings, ask questions, and place orders on in-store tablets with the help of non-commissioned consultants. Or they can go home and purchase later at their convenience.
“We’re learning there are a lot of new customers who are finding us for the first time through the Webroom and that some of our existing customers who love our quality and value still want to see, touch, and feel the ring,” said Blue Nile chief merchandising officer Julie Yoakum.